NOKIA

A Strategic Plan
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2011/2012
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TABLE OF CONTENTS

1. Introduction ............................................................................................................................ 3

1.1 Report Objectives ............................................................................................................ 3

1.2 Company Background ..................................................................................................... 3

2. Strategic Analysis .................................................................................................................. 4

2.1 Internal Analysis ............................................................................................................. 4

2.1.1 Strategic Business Units .......................................................................................... 4

2.1.2 Breakthrough Resources and Capabilities ............................................................... 5

2.1.3 Value Chain Analysis .............................................................................................. 5

2.1.4 Summary: Internal Analysis .................................................................................... 7

2.2 External Analysis ............................................................................................................ 8

2.2.1 Macro-Environment Analysis ................................................................................. 8

2.2.2 Industry Analysis ..................................................................................................... 8

2.2.2.1 Industry Growth ................................................................................................. 9

2.2.2.2 Industry Competitiveness................................................................................. 10

2.2.2.3 Competitors ...................................................................................................... 10

2.2.3 Summary: External Analysis ................................................................................. 11

2.3 Summary: Internal and External Analyses .................................................................... 12

2.4 Future Analysis ............................................................................................................. 12

2.4.1 Scenarios................................................................................................................ 13

2.4.2 Impact on Industry................................................................................................. 13

2.4.3 Impact on Organisation ......................................................................................... 13

2.4.4 Summary: Future Analysis .................................................................................... 14

3. Organisational Direction ...................................................................................................... 15

3.1 Vision, Mission, Values and Objectives ....................................................................... 15

3.2 Core Strategy ................................................................................................................. 15

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3.3 Strategic Focus .............................................................................................................. 17

4. Strategic Options, Evaluation & Recommendations ........................................................... 18

4.1 Options Generation ....................................................................................................... 18

4.1.1 Short/Medium-Term Options ................................................................................ 18

4.1.2 Long-Term Options ............................................................................................... 19

4.2 Options Evaluation ........................................................................................................ 20

4.2.1 Evaluation Criteria................................................................................................. 20

4.2.2 Short/Medium-Term Options ................................................................................ 20

4.2.3 Long-Term Options ............................................................................................... 20

4.2.4 Detailed Evaluation ............................................................................................... 21

4.3 Recommended Strategies .............................................................................................. 23

4.3.1 Strategy 1: Increase Spending on R&D and Innovation ....................................... 23

4.3.2 Strategy 2: Build and Extend Strategic Alliances/Partnerships ............................ 23

4.3.3 Strategy 3: Increase Production Capacity and Knowledge ................................... 24

5. Reflection and Conclusion ................................................................................................... 25

6. Bibliography of References ................................................................................................. 26

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1. INTRODUCTION
1.1 REPORT OBJECTIVES
 Understand Nokia’s current resources, capabilities and position in its micro and
macro-environment through applying relevant tools, theories and concepts in the
strategic analysis
 Determine whether Nokia is in need of a new strategic direction to gain and sustain
competitive advantage over its competitors
 Generate and evaluate new business and corporate level strategy options
 Select those strategies which are the most feasible, acceptable and suitable
 Discuss the overall analysis conducted to compare strategic recommendations with
Nokia’s existing strategies

1.2 COMPANY BACKGROUND

Nokia is a company that is heavily involved in telecommunications. This includes
developing, manufacturing and selling mobile communications products such as smartphones
and standard mobile phones [1]. It is also involved in digital location content such as maps,
traffic and location data through their wholly owned subsidiary NAVTEQ [2. Nokia also has
a joint-venture with Siemens which focuses on providing telecommunications infrastructure
and solutions [3]. The chartbelow shows Nokia’s net sales broken into their “reportable
segments”.

30% Devices & Services

NAVTEQ

Nokia Siemens Networks

2% 68%

Figure 1: Net Sales by Reportable Segment 2010[4]

In terms of shipment volume, Nokia is leading the overall mobile phone device market with a
28.9% market share [5]. Windows Mobile is said to grow in market share to almost 11% by
2012[6], which, through the strategic partnership with Microsoft [7], will benefit Nokia.

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2. STRATEGIC ANALYSIS
To develop a strategic plan for any organisation, a thorough analysis on internal and external
factors needs to be completed first to understand the current situation and conditions the
organisation is in. This report is now going to show the findings of both internal and external
analysis that was conducted for Nokia. The strategic analysis also includes an analysis of
future scenarios and their potential impact on Nokia’s industry and organisation itself.

2.1 INTERNAL ANALYSIS

The analysis of the micro-environment of Nokia shall provide a detailed overview as of how
the company derives its competitive advantage.

2.1.1 STRATEGIC BUSINESS UNITS

“A Strategic Business Unit (SBU) supplies goods or services for a distinct domain of
activity” [8], which can be identified through 4 different factors: geography, customer group,
technology and/or application [8].
Breaking an organization into SBUs has the benefit of allowing for business
strategies, which can be separate, independent, competitive from one another, to be analysed,
developed and executed for each SBU [8], which are easier manageable and more targeted to
the SBUs’ varying markets.
Nokia’s organisation can be split into 4 SBUs looking at the application and the
geographical market focus (n.b. Nokia sells all products worldwide, however they focus on
specific markets for different products).The table below shows Nokia’s 4 SBU’s applications
and main markets.

Middle East Rest of

SBU Application Europe US Asia
& Africa the World
Standard & feature phones (non-
Mobile Phones X X
smartphones)
Smart phones and devices based
Smart Devices on Symbian, Windows Mobile and X X
MeeGo
Internet Services & OVI Store, applications, support
X X X X X
Applications services
Geo-tagging & mapping; digital
NAVTEQ X X X X X
location content
Table 1: Nokia's SBUs per market focus [9] [2]

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2.1.2 BREAKTHROUGH RESOURCES AND CAPABILITIES

The resource-based view looks at the internal competencies of a firm, where resources are
considered to be “the assets that organisations have or can call upon and competencies are the
ways these assets are used or deployed effectively [10]”.
They can be divided into 4 main categories: Peripheral Resources, Base Resources,
Core Resources and Breakthrough Resources, which can include physical, financial, human
and intellectual resources.

Costly to Exploited by
Resource Valuable? Rare? Competitive Implication
imitate? Organisation?
Brand Image Yes No Yes Yes Temporary competitive advantage
R&D Facilities Yes Yes Yes No Temporary competitive advantage
Production
Yes Yes Yes Yes Sustained competitive advantage
Capability
Technology/
Yes No Yes Yes Temporary competitive advantage
Innovation
Financial Assets Yes Yes Yes Yes Sustained competitive advantage
Human Capital Yes Yes Yes Yes Sustained competitive advantage
Table 2: Nokia's Breakthrough Resources delivering Competitive Advantage

Nokia’s breakthrough resources are the key contributors to (sustained or temporary)

competitive advantage according to the VRIO framework, as are the breakthrough
capabilities, which are the processes of how the resources are put into use [11].
Both the breakthrough resources and capabilities can be found in the tables below.

Breakthrough Capabilities Examples

Strategic Partnerships Microsoft [7], Skype [12]
Successful Management of Acquisitions NAVTEQ
Knowledge Transfer and Innovation Coordination across the company, NAVTEQ and Nokia share
transnationally and across SBUs resources
Table 3: Nokia's Breakthrough Capabilities delivering Competitive Advantage

2.1.3 VALUE CHAIN ANALYSIS

Value Chain Analysis provides an insight of the value-adding process. It shows in detail how
resources and capabilities described in the previous section are being utilised to create added
value which in turn can lead to competitive advantage [13].
This report looks at the value chains per SBU, however many resources and
capabilities are shared and therefore combined in the following figure.

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 Corporate Governance: Shareholders ↔ Board of Directors ↔ Nokia Leadership (plus Internal & External Auditors) [14]
Firm  Practices: subject to Finnish laws and regulations, Nokia’s Articles of Association, the Finnish Corporate Governance Code [14]
Infrastructure
 SBUs: Mobile Phones, Smart Devices, Services & Applications, NAVTEQ
SBU1  Recruitment [15] [16]
Procurement Technology Development HR Mgt.

SBU2  Training & Development

SBU3  R&D
SBU4  Employee Rewards & Retention Programmes
 Raw Materials Improvement
SBU1  Components Improvement
 R&D
 Manufacturing Design
 Product Design  Marketing
SBU2  Testing
 Software Developing Research
 Information
 Software  Sales Support  Technical Support [19]
Technology Support
SBU3 Design &  Contents Improvement  Promotion & [20]
 Technologies  Online Database
Developing  Layout & Accessibility Advertising
Improvement
 Map Design [17] [18]
 R&D
SBU4 Database  Testing
Development
SBU1  Materials Margin
 Electronic  Technology Support
 Media
SBU2 Services
 Transportation  Energy Parts Purchasing  Travel Costs
 Transportation Services
SBU3  Sourcing  Supplies  Content  Supplies  Spare Parts
 Online Access to
 Software  Travel Costs
SBU4 Resources
Buying
 Materials Handling  Customer Support incl
 Materials Handling
SBU1  Stock Control  Machining Technical Support,
 Warehousing
 Materials Transportation  Packaging How-to Guides,
 Distribution  Selling
 Materials Inspection  Assembly Service Manuals,
SBU2
 Testing  Order Processing  Promotions
 Software Inspection Discussion Boards &
 Software  Partnerships Videos [25] [26] [28]
 Software & Database Content
SBU3 Developing  Software Content [23] [24] [7] [27]
Handling  Computing  Spare Parts
[21] [22] Handling  Sales
 Software Systems Control  Website  Application stores [29]
 Database Storage Administration
 Software Data Transportation Design
 Distribution [30]
SBU4  Software Inspection  Assembly  Software Updates /
 Order Processing
 Applications Inspection Product Support [31]
Marketing &
Inbound Logistics Operations Outbound Logistics Service
Sales

Table 4: Nokia's Value Chain

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2.1.4 SUMMARY: INTERNAL ANALYSIS

Porter’s theory of competitive advantage suggests that a firm must decide for either cost
advantage or differentiation advantage in their value creation.

Cost
Resources Capabilities or
Differantiation

Figure 2: Competitive Advantage [32]

Our internal analysis has shown that Nokia does not pursue one distinctive path but tries to
combine the two. Therefore Nokia find themselves “stuck in the middle” between focus, cost
and differentiation advantage and thus are unable to develop a sustainable competitive
advantage.

Cost

NOKIA
Differa
ntiatio Niche
n

Figure 3: Generic Strategies for Competitive Advantage [32]

In conclusion it can be said that Nokia possess excellent breakthrough resources and
capabilities, providing a great potential for a competitive advantage, however the core
strategy has to be focused on their cost advantage or differentiation advantage. This choice is
also subject of external market pressures, which will be determined in the following section.

Strengths Weaknesses
1. Managerial Coordination of Acquisitions 1. Lack of Strategic Direction (core strategy)
and Strategic Alliances 2. Lack of Knowledge Ownership (joint ventures &
2. R&D Capabilities and Knowledge Transfer strategic alliances)
3. Sophisticated Primary Value-Adding 3. Reactive mind-set to market pressures
Activities 4. Too high line product diversification
4. Flexibility in Corporate Government and 5. Inflexibility of Corporate Structure
Decision Making Process 6. R&D capabilities not fully exploited for technology
5. Established Brand and Market Knowledge innovation
Table 5: Strengths & Weaknesses - Findings from Internal Analysis

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2.2 EXTERNAL ANALYSIS

The analysis of the macro-environment of Nokia shall provide detailed overview of the
factors influencing the utilisation of its competitive advantage.

N.B. The SBU of NAVTEQ will not be considered any further for this paper, since it is
operated as a coordinated federation [33] and its management as a portfolio item does not
give sufficient opportunities for strategic direction by Nokia.

2.2.1 MACRO-ENVIRONMENT ANALYSIS

A PEST analysis will give a general insight into key drivers impacting on Nokia’s macro-
environment [34]. Nokia needs to be aware of these forces in their strategy development
process.

Factor Key Issue Implications for Nokia

1. Mobile network
licencing (3G/4G)
Political 2. Mobile phone market
regulations
3. Security regulations
1. Disposable income
2. Currency / Exchange
Economic rates
3. Costs of raw materials
1. Consumer preference &
buyer behaviour
Social 2. Purpose/Use of phone &
functionality
1. Technological
Innovation[35] [36] [37]
Technological [38] [39]
2. Physical telecoms
infrastructure
Table 6: Nokia’s PEST Factors
1. Network providers = distribution channels  essential for
market access
2. Nokia have to work within market regulations and have to
conform; lack of flexibility
3. Encryption/Access to communication content
1. Buying power decreased from recession  Nokia needs to
keep costs down (sell for low price)
2. Currency value / Exchange rate influence buying power of
customer
3. Cost of raw materials influence overall costs
1. Nokia need to anticipate consumer demands and
preferences and includes these into their products
2. Consumer demand / expectations for innovation of
products on a regular basis
1. Change of industry standards & operational framework
2. Nokia need work with telecoms infrastructure providers to
enable new markets

2.2.2 INDUSTRY ANALYSIS

The industry analysis will provide valuable understanding of the key forces that dominate
Nokia’s immediate environment. This is achieved through looking at the Nokia’s industry
from multiple angles.

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2.2.2.1 INDUSTRY GROWTH

The industry life cycle indicates that the combined mobile devices industry (including
standard and smartphones as well as complementary services) are currently still in the growth
phase. However, the growth has been extended due to the technical innovation of
smartphones. This extreme growth is due to “lower product costs, improved handset design
and functionalities, the expansion of global mobile email and browsing service, the
emergence of 3G and 4G network technologies, the rising competition among mobile
carriers, and the standardization and upgrades of operating systems” [40]. Without
smartphones, the industry would be in the maturity phase as indicated with the orange line.

Figure 4: Industry Life Cycle [41]

In 2009, the market segment of smartphones globally was estimated to be worth US$55.4bn
and was predicted to grow by 300% to US$150.3bn by 2014 [42]. Most recently, the entire
global mobile phone market, including the smartphone and the standard mobile phone
segment were estimated to be worth US$314.4bn by 2015 [40].Smartphones are predicted to
out-perform standard mobile phones in terms of annual revenue by 2013 [43]. 54% of mobile
phones sold in 2015 will be smartphones with over 3bn smartphones being sold between
2011 and 2015 [44]. This means it will be 8 out of 10 people who will own a mobile phone in
2015 [44]. Emergent markets will be key growth regions for standard mobile phones,
especially for smartphones [44].

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2.2.2.2 INDUSTRY COMPETITIVENESS

Porter identified general forces that any industry underlies: Threats of New Entrants, Threats
of Substitutes, Power of Buyers, Power of Suppliers and Competitive Rivalry. The level of
severity of each force determines what strategies are required to sustain competitive
advantage [45].

Force Analysis
Medium The entry barriers of cost &know-how mean that the threat of new entrants low.
Threat of However experienced companies in related fields/markets can transfer knowledge and cross-
New Entrants subsidise (see Apple iPhone), thus cost is not deterrent, which would make the threat of new
entrants high. Therefore overall the threat of new entrants is medium.
Threat of High due to shorter product life cycles and mobile computing innovation that produces
Substitutes similar benefits for consumers (tablets to smartphones) [44]
Highswitching costs are medium/high due to high differentiation of products; however price
Power of
elasticity is highly elastic due to change of consumer behaviour and preference and their
Buyers
lowered disposable income, making the power of buyers high.
Medium/Highswitching costs are low due to multitude of component manufacturers.
However, quality variations of components make switching costs medium. Network operators
Power of
have oligopoly power and can choose manufacturer to work with, so their power is very high.
Suppliers
However they are bound to consumer demand, thus making their power medium. Therefore,
the overall power of suppliers is medium.
Competitive Very Highdue to high differentiation and established competitors such as Nokia, Apple,
Rivalry Samsung, etc.
Table 7: Nokia's Industry in relation to Porter's 5 Forces

Even though the market is growing strongly – overall the mobile phones market has grown in
shipments by 16% year-on-year, with the smartphone market segment having shipped 73%
more devices than in the same quarter in the previous year, making up 75% of the overall
shipment volume [46] – the change in market share are significant in their magnitude: Nokia
has lost 7.5% of market share in the overall mobile device market and 19% in the smartphone
segment, where competition seems to be most fierce due to the high degree of product
differentiation [46].

2.2.2.3 COMPETITORS
As identified in the Porter’s 5 Forces, competition in the industry is high and to illustrate the
key players in the industry, strategic group analysis will be used. “Strategic groups are
organisations within an industry or sector with similar strategic characteristics, following
similar strategies or competing on similar bases [47]”.

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The purple circle represents the companies who are mainly active in the premium
(smartphone) segment of the industry and the competitors within the green circle shows the
firms active in the economy (standard mobile phone) segment.
High

Nokia
Market Share:
Group 22.8% [46]
Market Share:
Price

14.9% [46]
Group
Market Share:
26.5% [46]
Low

Inferior Relative Quality Superior

Figure 5: Nokia's Competitors with grouped market share [46]

It is worth noticing that in terms of smartphone segment shipments only Symbian and
Microsoft have shipped fewer devices year-on-year; all other vendors have increased their
sales volume [46].

2.2.3 SUMMARY: EXTERNAL ANALYSIS

To summarize the external analysis has shown that differentiation factors such as technology
innovation and consumer buying behaviour and power are predominant drivers of the
industry’s competition. Porter identified 3 factors that produce the highest level of
competition: (1) lower industry growth rates, (2) high differentiation and (3) established
competitors [48]. 2 of these factors are already present, which emphasise the need for
differentiation focus. However, there are also indications supporting the need for cost focus
such as impending industry maturity and potential new entrants into the market.

Opportunities Threats
1. Strong market growth 1. Changing industry standards
2. Changing consumer behaviour & preferences 2. Buyers’ heightened price sensitivity
3. Development towards differentiation focus 3. Potential new entrants such as IBM, Asus, Fujitsu, Dell
Table 8: Opportunities & Threats - Findings from External Analysis

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2.3 SUMMARY: INTERNAL AND EXTERNAL ANALYSES

To summarize the current internal and external factors impacting Nokia which were found
through the strategic analysis, SWOT is an ideal visualisation tool [49].

STRENGTHS
• Managerial Coordination of Acquisitions
and Strategic Alliances
• R&D Capabilities and Knowledge Transfer
• Sophisticated Primary Value-Adding
Activities
• Flexibility in Corporate Government and
Decision Making Process
• Established Brand and Market Knowledge
WEAKNESSES
• Lack of Strategic Direction (core strategy)
• Lack of Knowledge Ownership (joint
ventures & strategic alliances)
• Reactive mind-set to market pressures
• Too high line product diversification
• Inflexibility of Corporate Structure
• R&D capabilities not fully exploited for
technology innovation

OPPORTUNITIES THREATS
• Strong market growth • Changing industry standards
• Changing consumer behaviour & • Buyer’s heightened price sensitivity
preferences • Potential new entrants such as IBM, Asus,
• Development towards differentiation focus Fujitsu, Dell

Figure 6: Nokia's SWOT for the Present

2.4 FUTURE ANALYSIS

Uncertainties are numerous in this ever fast changing world and have been very costly to a
variety of companies due to their under- and/or overprediction of future change [50]
“Scenario planning attempts to capture the richness and range of possibilities, stimulating
decision makers to consider changes they would otherwise ignore” [50]. It allows for
discovering new future business opportunities and threats [51].
However, this tool is not a scientific forecasting tool and should be treated as such.

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2.4.1 SCENARIOS
Description
Emergent Markets Previously developed economies have declined causing high unemployment and low
now World Leaders buying power. Currencies rates are badly valued. World-leading economy is now Asia.
New technology and materials have been developed through R&D for differentiation.
Cutting-Edge
Smart devices have become a part of standard quality of life. Patents are held by
Technology
competitors, limiting Nokia to use these new technologies, only against licencing fees.
Network Operators’ Major network operators have started to backward integrated, selling their own mobile
integrate backwards with the best tariffs, thus giving customers more choice and power.
Table 9: Scenarios for 2025

2.4.2 IMPACT ON INDUSTRY

Force Today Scenario 1 Scenario 2 Scenario 3
Threats of New Entrants Medium High Low Very High
Threats of Substitutes High Medium Low/Medium High
Power of Buyers High Medium Low/Medium Very High
Power of Suppliers Medium/High Very High High Very High
Competitive Rivalry Very High Very High Medium Very High
Table 10: Scenarios' Impact on Industry Forces

2.4.3 IMPACT ON ORGANISATION

Today Scenario 1 Scenario 2 Scenario 3
V R I O V R I O V R I O V R I O
Brand Image                
R&D Capacity                
Production Capability                
Technology/Innovation                
Financial Assets                
Human Capital                
Table 11: Scenarios' Impact on Nokia

Since Nokia already have diminishing sales volumes and market shares, as shown in the
external analysis, and is facing currently numerous external strains such as a changing
consumer behaviour and technological innovation, it can be said that Nokia's current
resources and capabilities cannot be utilised in a fashion that can provide the firm with a
sustainable competitive advantage in the future.
Thus it is essential for Nokia to identify the key threats and opportunities of the future and
match them with current strengths and weakness, as well as strengths and weaknesses of the
future firm in regards to strategic change that will be implemented. Only if these factors are
taken into consideration Nokia can improve its resource & capability utilisation and identify

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the key resources that require development or improvement to derive a sustainable

competitive advantage.

2.4.4 SUMMARY: FUTURE ANALYSIS

Scenario 1
 Exploitation of newly
developed markets’ growth
 R&D capabilities in newly
Strengths developed markets
 Increase brand
awareness/power in newly
developed markets
 Partial loss of human
capital to growing
Weaknesses competitors
 Loss of financial assets due
to decrease of market share
 Higher disposable income
of customers based in
newly developed markets
 Market penetration /
Opportunities
expansion
 Cheaper employment
expenses in declined
markets
 Exchange rates between
newly developed markets
and declined markets
Threats
 Increase in cost of raw
materials and components
 Asian-isation of products
Table 12: Nokia's future SWOT in these scenarios
Scenario 2
 Human capital
 Production capabilities
 Establish market
experience
 Poor exploitation of R&D
capabilities
 Limited innovation and
technology
 Reactive mind-set
 Strategic Alliances &
Partnerships / Joint-
Ventures with competitors
and complementors
 Refocus on standard
mobile phones for
emergent markets
 Lack of knowledge and
technology ownership
 Negative effects on brand
reputation due to lack of
innovation
 Buyers’ weakened power
Scenario 3
 Experienced Technology
and Innovation
 Knowledge of Human
Capital
 Strategic Alliances with
key industry players
 Lack of financial assets for
vertical integration
 Dependency on network
operators as distribution
channel
 Forward vertical
integration for Nokia
 Strategic alliances with
network operators
 Become supplier of R&D
and production
capabilities to network
operators
 New entrants who can
cross-subsidise and have
access and relationships to
end-costumers

Scenario planning and its applied tools show that in the following 10-15 years, competitive
rivalry is most likely to increase or at least remain at the current level with the market’s
growth and potential move into maturity industry life cycle phase.
The industry’s driving factor for Scenario 1 cost focus as consumers become even
more price sensitive, which means that product elasticity increases. This in turn demands
economies of scale, strategic alliances and cost efficient processes.
The macro-environmental key driver for Scenario 2 is differentiation focus whereas
Scenario 3 indicates a need for cost focus which could be achieved through forward vertical
integration, economies of scale, cost efficient processes as well as strategic alliances.

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3. ORGANISATIONAL DIRECTION
3.1 VISION, MISSION, VALUES AND OBJECTIVES
“Nokia’s mission is simple: Connecting People. Our goal is to build great mobile products
that enable billions of people worldwide to enjoy more of what life has to offer. Our
challenge is to achieve this in an increasingly dynamic and competitive environment.” [52]

engaging
you

passion
achieving
for
together
innovation

very
human

Figure 7: Nokia's Values [53]

Objectives
 Build a new winning mobile ecosystem in partnership with Microsoft
 Bring the next billion online in developing growth markets
 Invest in next-generation disruptive technologies
 Increase our focus on speed, results and accountability
Table 13: Nokia's current Objectives [52]

3.2 CORE STRATEGY

From their statement, it is clear that Nokia is not focusing on either recommended path for
achieving a sustainable competitive advantage. Currently they are focusing both on cost
(objective 2 & 4) as well as differentiation (objective 1 & 3).
In addition, the external environment is highly competitive and will continue to
increase in competitiveness leaving Nokia in an unfavourable position compared to its
competitors. In order to develop sustainable competitive advantage Nokia have to create a
comprehensive corporate strategy that reflects the need for change towards a differentiation
advantage in the short-term while increasing its cost efficiency in the long-term. The figure
below illustrates Nokia’s current strategic position (blue star), short-term (red star) and long-
term (green star) directions.

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Cost Leadership Differentiation

Broad BROAD BROAD

Target COST LEADERSHIP DIFFERENTIATION

Narrow
Target NICHE or FOCUSED NICHE or FOCUSED
COST LEADERSHIP DIFFERENTIATION

Figure 8: Generic Strategies for Competitive Advantage [54]

The goal for Nokia is to improve its performance and according to theory, this can be done
via two ways: improved profitability or increased volumes [55], which are shown in the
figure below.

Reduce capital costs

Reduce Costs Reduce fixed costs

Reduce variable costs

Improve Profitability
Change Product mix

Increase Margins Increase Price

Add value
Improve
Performance
Win competitors' customers

Increase Market Share Acquisitions/Alliances

Increase usage rate

Increase Volume
New Segments

Expand Market New Markets

Innovation

Figure 9: Ways of Improving Performance [55]

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Since the external analysis shows a highly competitive industry environment, improving
performance through improving profitability (reduce costs and/or increase margins) are
unfavourable.
However, cost efficiency can still be achieved through reducing cost via differentiation
(esp. superior quality) as it can result in lower unit costs through achieving gains in market
share and attending economies of scale/experience effects [56].
Therefore, Nokia should choose the path of increased volume in the short term and try to
achieve cost efficiency through differentiation in the long term. On this path, the firm can
improve its performance both through increasing market share by building and expanding
strategic alliances, partnerships and joint-ventures and through expanding market through
product innovation, thus capturing new market segments or new consumer groups.

3.3 STRATEGIC FOCUS

In order to achieve this transformation, Nokia will use various short/medium-term and long-
term strategies.
The Ansoff Matrix below illustrates the new strategic focus of the organisation being a
mix of market penetration and product development, which carries low-medium risks as
activities will take place in Nokia’s existing markets.

Existing Products New Products

Existing
Markets Market Penetration Product Development

New
Markets Market Development Diversification

Figure 10: Market/Product Matrix [57]

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4. STRATEGIC OPTIONS, EVALUATION & RECOMMENDATIONS

This section will provide corporate and business level strategies to achieve the above
mentioned strategic focus (black star in Ansoff Matrix). For this, 2 TOWS that feature SWOT
findings for the present and for the future are used to generate of short/medium-term and
long-term strategy options respectively.
These generated options are then evaluated on feasibility, suitability and acceptability
(FSA) to determine which strategies are most recommendable for Nokia to implement.

4.1 OPTIONS GENERATION

4.1.1 SHORT/MEDIUM-TERM OPTIONS
Strengths
S1. Managerial Coordination of
Acquisitions and Strategic Alliances
S2. R&D Capabilities and Knowledge
Transfer
S3. Sophisticated Primary Value-
Short/Medium-Term
Adding Activities
Options
S4. Flexibility in Corporate
Government and Decision Making
Process
S5. Established Brand and Market
Knowledge
Opportunities S2+S5+O1+O2+O3=
O1. Strong market growth consolidate product portfolio to focus
O2. Changing consumer on “hero” products
behaviour & preferences
O3. Development towards S2+S3+S5+O2+O3=
differentiation focus Develop cloud-service/OS
S1+S5+T1+T2+T3=
Threats Build/extend strategic
T1. Changing industry alliances/partnerships
standards
T2. Buyer’s heightened S1+S4+ T1+T3=
price sensitivity increase vertical integration
T3. Potential new entrants
such as IBM, Acer, Fujitsu, S5+T2=
Dell Develop entry-level products for
emerging market
Table 14: TOWS generating Short/Medium-term Options
Weaknesses
W1.Lack of Strategic Direction (core
strategy)
W2. Lack of Knowledge Ownership
(joint ventures & strategic alliances)
W3. Reactive mind-set to market
pressures
W4. Too high line product
diversification
W5. Inflexibility of Corporate
Structure
W6. R&D capabilities not fully
exploited for technology innovation
W1+W3+O1+O3=
increase spending on R&D and
Innovation for product development to
expand the market
T2+W2+W4+W5=
reallocate R&D investments for
feature phones to create more cost
efficient production capabilities

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4.1.2 LONG-TERM OPTIONS

Strengths Weaknesses
S1. Exploitation of newly developed W1. Partial loss of human capital
markets’ growth to growing competitors
S2. R&D capabilities in newly W2. Loss of financial assets due
developed markets to decrease of market share
S3. Increase brand awareness/power W3. Poor exploitation of R&D
in newly developed markets capabilities
Long-Term Options S4. Human capital W4. Limited innovation and
S5. Production capabilities technology
S6. Established market experience W5. Reactive mind-set
S7. Experienced Technology and W6. Lack of financial assets for
Innovation vertical integration
S8. Knowledge of Human Capital W7. Dependency on network
S9. Strategic Alliances with key operators as distribution channel
industry players
Opportunities
O1. Higher disposable income of
customers based in newly developed
markets
O2. Market penetration / expansion
O3. Cheaper employment expenses
in declined markets
O4. Strategic Alliances & O4+O5+O7+S1+S5+S7=
Partnerships / Joint-Ventures with Increase production capacity and O1+O3+W2+W6=
competitors and complimentary product knowledge to increase Product consolidation and
O5. Refocus on standard mobile economies of scale and economic spending decrease
phones for emergent markets efficiency
O6. Forward vertical integration for
Nokia
O7. Strategic alliances with network
operators
O8. Become supplier of R&D and
production capabilities to network
operators
Threats.
T1. Exchange rates between newly
developed markets and declined
markets
T2. Increase in cost of raw materials
and components
T3. Asian-isation of products T1+T3+T7+S2+S6 = T2+T4+T6+W3+W5=
T4. Lack of knowledge and Increased product development and Outsource R&D and focus on
technology ownership product innovation reducing production cost
T5. Negative effects on brand
reputation due to lack of innovation
T6. Buyers’ weakened power
T7. New entrants who can cross-
subsidise and have access and
relationships to end-costumers
Table 15: TOWS generating Long-term Options

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4.2 OPTIONS EVALUATION

4.2.1 EVALUATION CRITERIA
The chosen rating scale is 1 to 10, 1 being the least feasible/suitable/acceptable and 10 being
the most feasible/suitable/acceptable. The dimension of each criterion is listed in the table
below.
Criteria Dimensions
 Financially
Feasibility (F)  Technically
 Cost effectiveness
 Fit with capabilities
Suitability (S)  Fit with environment
 Base for competitive advantage
 Value for money
Acceptability (A)  Range of consumers reached
 Safety of investment
Table 16: Evaluation Criteria and Dimensions

4.2.2 SHORT/MEDIUM-TERM OPTIONS

Short/Medium-term Strategic Options F S A Result
S&O1: Consolidate product portfolio to focus on “hero” products 6 8 9 25
S&O2: Develop cloud-service/OS 10 8 8 25
W&O1: Increase spending on R&D and Innovation for product development to
10 9 9 28
expand the market
S&T1: Build/extend strategic alliances/partnerships 10 10 9 29
S&T2: Increase vertical integration 6 8 7 21
S&T3: Develop entry-level products for emerging market 7 8 8 23
W&T1: Reallocate R&D investments for feature phones to create more cost
7 7 5 19
efficient production capabilities
Table 17: Testing Short/Medium-term Options for FSA

4.2.3 LONG-TERM OPTIONS

Scenario 1 Scenario 2 Scenario 3 Result
Long-term Strategic Options
F S A F S A F S A
S&O1: Increase production capacity and
product knowledge to increase economies of 9 9 8 8 9 9 8 8 9 77
scale and economic efficiency
W&O1: Product consolidation and spending
7 7 6 8 7 6 8 7 8 64
decrease
S&T1: Increased product development and
8 9 7 9 8 7 6 7 9 70
product innovation
W&T1: Outsource R&D and focus on
7 8 8 6 7 8 8 7 6 65
reducing production cost
Table 18: Testing Long-term Options for FSA

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4.2.4 DETAILED EVALUATION

Short-Term Strategy 1
Increase spending on R&D and Innovation
 Technical capabilities available at Nokia
 Nokia still has high annual revenue of EUR42.4bn net sales and EUR2bn operating profit
Feasibility [58]
 Rapidly changing market place for innovation technology leaves great room
 Partnership with Microsoft gives direct support for software developments.
 In line with strategic focus (Market Penetration & Product Development) and core strategy
(Differentiation)
 Exploits fast market growth
 Accommodates macro & industry drivers of differentiation
Suitability
 Exploits breakthrough resource of R&D and technology/innovation
 Enables differentiation through technology
 Exploits market knowledge
 Overcomes reactive mind-set of Nokia towards proactive thinking
 Low/Medium risk as remaining in existing markets
 Patents gained from R&D can provide revenue stream and competitive advantage  Nokia
was paid $600m by Apple for patents [59]
Acceptability
 Part of Nokia’s “Passion for Innovation” Value [53]
 Utilises staff rather than wholesale redundancies
 Technologically innovative products have been proven to drive market success.
Short-Term Strategy 2
Build and expand Strategic Alliances and Partnerships
 Partnership with Microsoft has proven these are workable
 Major players such as Research in Motion and Amazon would benefit from Nokia’s
resources.
 Combining with Non-mobile telephony tech firms (e.g Hitachi, Cisco, Panasonic, Siemens)
Feasibility would allow Nokia to focus on their competitive strengths and bring in expert partners for
other area
 Expanding current partnership with Microsoft would be profitable for both, exploiting
Nokia’s telephony experience, and MS’ move into Unified Communications with
Exchange and Lync.
 In line with strategic focus (Market Penetration) and core strategy {Differentiation with
additional focus on cost efficiency)
 Exploits breakthrough capability of building partnerships/alliances
 Enables differentiation through exclusivity and synergy
Suitability  Allows for scaling economies (complimentary to long-term strategy)
 Allows for learning from partners and using their capabilities
 Accommodates changing industry standards
 Accommodates buyers’ heightened price sensitivity
 Enables reducing threats of new entrants
 Low risk as Nokia have strong experience in successful management strategic
alliances/partnerships
 Medium risk as it could affect Nokia’s brand value due to diffused partnerships
 with leading companies such
Acceptability
 Partnering with leading companies such as Microsoft is reassuring to shareholders
 Partnering rather than merging/selling allows Nokia to retain a degree of control and
sovereignty
 Demonstrates a commitment to regaining market leader status

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Long-Term Strategy
Increase Production Capacity and Knowledge for Economies of Scale and Economic Efficiency
 Factories can be set up easily, especially in partnership with specialists such as Foxxconn
 Nokia have the financial resources available to make this capital investment
 Move would be supported by Finnish Government, creating jobs in a time of economic
Feasibility
uncertainty
 Market demand for handsets remains high and is increasing, capacity will be utilised
providing additional market share can be captured
 In line with core strategy (Differentiation with focus on additional cost efficiency)
 Exploits and extends breakthrough resource of production capabilities / capacity
 Allows for cost efficiency through economies of scale via differentiation and subsequent
Suitability market share growth
 Allows for accommodating and exploiting demand and market growth in emerging
markets
 Reduces risks of supply chain issues affecting supply of crucial high-end components
 Low/medium risk as remaining in existing markets
Acceptability  Medium risks as, if market share declines, capital investment in capacity would be wasted
 Enables flexibility for Nokia to react to change rapidly, which has been an issue in the past
Table 19: detailed FSA for all suggested strategies

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4.3 RECOMMENDED STRATEGIES

4.3.1 STRATEGY 1: INCREASE SPENDING ON R&D AND INNOVATION
Nokia should focus on producing the most innovative and technologically advanced products
for gaining competitive advantage. This includes continuous Symbian development for low-
price devices as well as focus on developing in the following areas for the benefits of
smartphones, tablets and other mobile computing enabling devices with the latest technology.

Areas of Focus Reasons & Benefits

 Electricity prices high  lower costs if fewer charging needs
 Electricity infrastructure insufficient in emergent markets
Battery life
 Battery life of smartphones generally weaker due to usage
demands
 Physical telecoms infrastructure in emergent countries insufficient
 strong radio signal will be differentiator
Radio technology
 4G next generation of mobile internet  accommodation of
changing industry standards
 Touchscreens most popular
Display quality
 Image/Graphics quality important differentiator
 Phones becoming mobile computing devices in need of fast CPUs
CPU power
(dual/quad-cores)  enables user to do multiple things in parallel
 Intuitive user-friendly OS important to customers  enables easy
User-friendly OS
switching between OS
 Multitude of applications bridge user preference gap between
Applications eco-system with OS- consumer and corporate clients
cross-handling capabilities  Applications accommodate varying consumer preferences
 Switching between different OS easier if applications transferrable
 Lowers calling costs for users
VoIP
 Lowers strain on limited network frequency bandwidth
 Security/Encryption of personal data and communication grows in
Security/Encryption importance as devices become everyday-all-use-items
 Lowers risks of malware/virus attacks
 Easy access to important data from different access points
Cloud computing & infrastructure
(laptops, phones, PCs, etc)  avoids loss of data and duplication
Table 20: Areas of focus for R&D and Innovation and implied benefits

4.3.2 STRATEGY 2: BUILD AND EXTEND STRATEGIC ALLIANCES/PARTNERSHIPS

Nokia is also recommended to build partnerships and strategic alliances with following
companies as these can further and compliment all and additional activities of strategy 1.
In some areas of development as suggested in strategy 1, Nokia even has indirect
partnerships and cooperation through their partnership with Microsoft. For example, for
VoIP, Nokia can benefit from Microsoft’s purchase of Skype – the main VoIP service
provider.

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Company Benefits
 Software development
Google
 Cloud applications
Foxxconn  Manufacturing,
 Cloud infrastructure
Amazon
 Monetization of content and applications,
 Access to enterprise / corporate clients
Cisco
 Knowledge of VoIP
 Display technology
Panasonic
 Knowledge of emergent markets (Asia)
 FlashMemory supply
Ritek
 OLED screen supply
CyanogenMod  UI development and enhancement
Symantec  Device security and management
 Linux-based OS with room of cross-handling
HP WebOS apps
 OS enhancement
NetApp  Scalable storage to support cloud infrastructure
Texas Instruments  Processor (CPU) development
 Advanced graphic development and support
Nvidia
 CPU development and support
Table 21: Recommended partner companies and benefits

4.3.3 STRATEGY 3: INCREASE PRODUCTION CAPACITY AND KNOWLEDGE

Since both short term strategies are focused on improving the product quality and enhancing
Nokia’s differentiation advantage, it is crucial to focus on cost saving in the long term. Not
only has the scenario planning identified intense cost pressures but also the competitors
analysis has shown a strong group at the high quality, high price end, thus in order to out
compete those competitors, Nokia has to be more cost efficient.
The goal is to increase quality in the short term and thus increase volume via
increased market share or new market segments, i.e. the late majority.
This increased volume will enable Nokia to take advantage of economies of scale more than
before, other than that process improvement tools such as “kaizen” will be used to streamline
the supply chain. Improved SA will enable Nokia to reduced buying prices for services and
raw materials since it will be more vertically integrated than its competitors.
All in all this 3rd strategy will only work in combination with the first two and only
this 3rd strategy will enable Nokia’s short term efforts to become a sustainable competitive
advantage in the long run.

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5. REFLECTION AND CONCLUSION

In February 2011, Nokia announced their strategic partnership with Microsoft [7] and
proclaimed that the first stream result of their cooperation to be smartphones, with the first
devices to be the Lumia 800 and Lumia 710 to be released at the end of October with
Windows Phone 7 “Mango” as operating system [60]. Just after the launch of these Nokia-
Microsoft smartphone devices, the partners announced the 2nd area of cooperation to be
mobile computing tablets, with the first one to be released in June 2012 with Windows 8 as
operating system [61].
Clearly, Nokia are following the suggested strategy 2 of building and expanding of
their strategic alliances. In their relationship with Microsoft, Microsoft provides the software
side, which is the aspect that Nokia most struggles with and in return Nokia provides the
hardware that Microsoft is inexperienced with. Nokia has also started a partnership with
Warner Brothers to enable product placement for raising brand awareness, so that the new
Lumia 800 will be featured at an action figure’s mobile device in a major upcoming
blockbuster [62]. Both these partnerships are in line with the suggested strategy 2.
Very soon after launch of the Nokia-Windows phones, big issues with battery
drainage arose, which are unusual for Nokia who are normally known for long battery life.
These had to be fixed through software updates [63]. Other reviews have pointed out many
additional areas of improvement [64] [65] while another big area of necessary development
for the devices and the company itself is security [66] [67] [68] [69]. All these aspects in need
of R&D and innovation development are suggested in strategy 1.
So it can be said that even though the analysis performed was not very in depth in
regards to company data and market research, the strategic options identified match the
strategic goals of Nokia. However the strategies identified seem to be too little justified by
Nokia and the general sense of going for both a cost and a differentiation leadership has
clearly impacted negatively on the organisation as shown by sales developments and such.
Finally the long term option of cost pressure is nowhere to be found in the Nokia data
we accessed. It is possible that it is not on the company’s “radar” or that this is just part of
their overall “mixed strategy”.
However we feel that the recommended strategies have an excellent founding in data
as well as theoretical rational that will enable Nokia to develop and sustain a competitive
advantage.

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CANDIDATES: 570990. 796689. 147397. 815888

 BM3399: STRATEGIC MANAGEMENT || 31

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